The emerging nanoscience, nanotechnology and nanomaterials can be used for various industrial applications to enhance reliability, performance, stability and functional capability. Their application in the design and development of tools and materials used in oil and gas industry for extreme drilling conditions could overcome the current limitations of conventional tools and the various fluid systems used by the industry. The functional limitations such as poor physio-chemical stability in acid gas environment, frequent mechanical failure and malfunctioning in complex geological environment, thermal degradation in high temperature environment, etc. of currently used conventional tools and fluid systems are associated with extreme operating conditions due to a shift of the drilling operation from low risk to high risk geological environments, onshore to offshore locations, shallow water to deep water environment, etc. The progressive shift to increasingly higher risk operating environments is unavoidable as the energy demand of global community has increased manifold and is expected to increase further in future. Moreover, the probability and likelihood of finding easy oils and gas resources in low risk areas are diminishing quickly. That is why the oil and gas companies are constantly shifting to extremely challenging environments to meet the global energy demand. This is reflected by the expansion of drilling activities in complex geological areas, deep water environments, extreme-HPHT environments, etc. As the current tools and equipment and also the additives and chemicals often fail and/or lose their functional ability due to the detrimental effect of exposure of extremely harsh conditions, the industry needs tools and equipment, chemicals fluid additives that are highly reliable, chemically resistive, thermally and mechanically stable to ensure safe and trouble free drilling operations. It has been demonstrated in several fields of study that nanostructured materials and additives exhibit improved mechanical, chemical, thermal, electrical and tribological properties that can significantly increase the stability and durability of the tools and equipment along with the chemical and thermal stability of additives required for high performance fluid design. This review article captures the recent developments about the application of nanomaterials in the design and development of tools, equipment, additives, chemicals and smart materials to overcome current and future technical challenges of the oil and gas industry. Finally, the conventional of rule of mixtures of composite materials design and the current nanotechnology-based research conducted by various researchers have been highlighted to demonstrate potential of nanotechnology to enhance the physical, mechanical, chemical and thermal property of tools, equipment and various fluid systems used by the oil and gas industry.